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Video: Lindsell Train – Why we bought Prada

Michael Lindsell and James Bullock have added a new stock to the Lindsell Train Global Equity fund for the first time in two years. They tell Emma Wall why they bought it.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

  • Luxury goods retailer Prada is a market leader say the fund managers
  • A stock with heritage and a global consumer base is an attractive proposition
  • The stock has been troubled but the fund managers believe it has great potential

Read transcript

Emma Wall, Head of Investment Analysis at Hargreaves Lansdown, speaks directly to camera, and then begins an interview.

Emma: Hello, I'm Emma Wall. I'm joined today by Lindsell Train Global Equity to talk about their newest acquisition. Hello Michael. Hello James.

Michael: Hello Emma.

Emma: Michael, a new purchase in any of your funds is a rare thing. The last time that you made an addition to this fund was 2017 and now Prada. What was behind the purchase?

Michael: Well a lot of research. We've been thinking about including a luxury stock for some time, I mean probably last 3 or 4 years. We did a big report, internal report, on luxury ourselves. We like the idea of appealing to natural human instincts like vanity and aspiration, and we were given the opportunity to think more closely about Prada because the company has been struggling a bit. It’s had some poor sales in its directly owned stores and it needs to restructure them. And it certainly lost control of pricing in the wholesale channel that is in the discounts that they offer to consumers on different platforms. The company is now restricting inventory, it's now cutting back on its stores that weren't performing and that's meaning that sales are stagnating and that profits are falling a bit. But that's a temporary thing we think, and that's giving us an opportunity because the shares have performed badly. To put it into perspective they're listed in Hong Kong, they were trading at 80 Hong Kong dollars or thereabouts three or four years ago and the share price has come down to 20 and we've been buying it over the course of the summer, last summer, at about 23 or 24 dollars.

Emma: And James despite these difficulties there are a lot of fundamentals about the Prada brand and the Prada business that really ticked the boxes for what you look for in any stock that you invest in.

James: No that's absolutely right. I mean you know something that's very key for us is companies with heritage going back behind them. And if you can look back a long way you know multi-decades and actually Prada is now over a hundred years old it goes back to 1913. And if you could look forward to the company's future as well and see similar things playing out that can be quite important way to construct valuations. You know on top of that you've got a brand that is very very strong has been built up over a very very long time, that has the heritage of Milanese luxury leather goods manufacturing. That heritage can't be created you know, you can't from scratch start a new luxury brand with a heritage going back behind it. And if you want to convince their consumer to pay thousands of pounds, thousands of dollars for a new handbag, for a new coat, it's a very hard thing to do unless you've got that background behind you. It means that there's almost no new luxury good launches and as a result you know something like Prada that comes along with a heritage, down probably 70% from its highs, it's an attractive thing.

Emma: And Michael, as James has just hinted there although it is listed in Hong Kong it's very much a global client base for this stock as with so many of your stocks, isn't there?

James: Absolutely I mean one of Prada biggest markets is in China. It's been taken up prodigiously in that country over the last few years and it's opened lots of stores like part of the problem I was referring to earlier. But it has a heritage that goes back a long way in Europe, in Milan and it has a focus I think on leather goods. And that is an important aspect of the attraction there because leather goods and handbags particularly, are the most profitable part of any luxury goods companies profile, and Prada has at least 40% of that in its sales makeup.

Emma: Now James I don't want this video to be too positive, how do you know as an investor that these troubles that Michael spoke about at the beginning the video are behind Prada? Because there's that thing that any investor faces which is balancing whether this is a good value at this price stock versus is it at this price for a reason.

James: Well I mean you know price wise you can say a couple of things. Firstly, you know the price that you pay or at least when we started buying Prada, you're paying a similar multiple to sales or to earnings to a consumer goods franchise you know like a company like Unilever. Which is an interesting thing because Unilever has a heritage but doesn't have that luxury element on top of it which I think distinguishes Prada. But you know you're then, it's a question of time horizons so the problems aren't necessarily behind them you know you may have several more years of problems. And as Michael said you're going to have to start rationalising things and that does hit profits and there probably will be some more pain to come. But in the long term if you've got a very strong brand and it's as strong as we think it is and if you haven't damaged the brand fundamentally by doing all the things that have been going wrong, which we don't think they have, then I think in the long term you've got a good story.

Emma: James, Michael thank you very much. (Directly to camera) Thank you for you for watching.


This video is not personal advice or a recommendation to invest. If you are unsure about the suitability of an investment please seek advice. Investments can fall as well as rise in value and you could get back less than you invest. Past performance is not a guide to the future. Please read the key investor information before investing for more details of the risks and charges

Any comment on individual companies is not a recommendation to invest.

The views in this video are those of Michael Lindsell and James Bullock and may not be shared by Hargreaves Lansdown.

The Lindsell Train Global Equity Fund holds shares in Hargreaves Lansdown plc.

Views correct as at 22 January 2020.

Any comment on individual companies is not a recommendation to invest.

The views in this video are those of Michael Lindsell and James Bullock and may not be shared by Hargreaves Lansdown.

The Lindsell Train Global Equity Fund holds shares in Hargreaves Lansdown plc.


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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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